Riding Out the Storm: Why Long-Term Strategy Still Wins

An effective strategy needs a single goal and a clearly defined process for achieving it. Our goal is to generate good long-term returns for our investors. Our process is to construct a portfolio of high-quality businesses with strong brands and sustainable competitive advantages while paying fair prices.

Our focus is long-term performance. We cannot always outperform the benchmark, nor avoid share price falls — nor do we seek to. If we allow that temporary objective to distract us, we will end up with an empty pot.

Share prices are driven by short-term sentiment, but by fundamentals in the long term. Sentiment derives from human emotion and is erratic. Consequently, near-term share price falls cannot be consistently avoided. We want to own businesses that can generate an earnings stream that underpins the value of their shares over the long term. We then put our faith in human greed to ensure that share prices ultimately reflect that value.

A slowdown in US consumer spending is a key risk for our Fund. However, it is important to remember that markets anticipate events, so some spending slowdown is already priced into our holdings. We cannot know how severe the slowdown will ultimately be, but the further share prices fall, the more likely it is the market will overestimate its impact.

Careful review and considered decisions

When faced with turbulent markets and falling stock prices, we yearn for decisive action. It is comforting because it gives one the illusion of control. However, these are the worst times to make bold decisions because our cognitive biases are in overdrive. It is far more difficult to sit tight and stay focused on the rabbit we are chasing. Yet we believe that is invariably the best course of action under these circumstances, and it is precisely what we are doing.

This quarter, we saw a remarkable pattern during earnings season. Our companies typically reported a strong end to 2024, with excellent sales growth and high profitability.

On our conference calls, most noted some softening in US demand as they moved into 2025, and most offered cautious guidance. The steep share price falls that followed are at odds with the actual performance of these businesses and their long-term prospects.

This phenomenon is well illustrated by Galderma, a leading Swiss dermatology business and a major holding in our Fund.

Getting under the skin of Galderma

In 2024, Galderma grew sales by 10% and profits by 20%. Their key product, Dysport, continues to take market share from Botox. Indeed, Dysport grew 12% while Botox grew just 3%. Dysport is now half the size of Botox. Three years ago, it was one-third the size. We believe Galderma can continue to take share as it continues to innovate.

In other encouraging news, Galderma’s first new patented pharmaceutical product in many years was approved by the FDA and has been well received by US physicians. As set-up costs fall away, we expect eczema treatment Nemluvio to become a meaningful profit driver in 2026 and beyond. Their skincare products also continue to sell well despite fierce competition.

The only wrinkle in the result was softening demand for Fillers in the US. This was sufficient to see the stock price fall 25% over the subsequent three days, yet US Fillers account for just 10% of revenue. Secondly, the Fillers segment still grew 7% in 2024, while key competitor Juvederm experienced a 12% decline. This highlights Galderma’s capacity to grow and take market share even in difficult conditions.

Needless to say, the market is not assessing the long-term fundamental prospects of this business in a rational manner. We believe the share price move reflects general investor nervousness rather than the company’s performance.

Nor is Galderma unique. This pattern was repeated across many of our companies that reported in February and March.

We expect Galderma and our other companies to continue posting higher earnings and profitability in coming years, a potential US recession notwithstanding. For our part, we remain focused squarely on the performance of the underlying businesses — not the short-term stock price. We are riding out the storm.